Thursday, April 28, 2011

Wages Below the Minimum Wage

The New York Times reports that workers protested government officials closing textile plants where the workers were being paid below the government minimum wage. Many of the workers were concerned that they would not be able to find work, and thus were willing to work for less than the government mandated minimum wage.

One of the things that economics tells us is that markets tend to be a more efficient allocator of resources than other institutions, and that government price (or wage) policies tend to create inefficiencies within the market. This is exactly what we have here. Individuals - who unfortunately - are willing and able to work for a wage below that set by the government. If these workers cannot find alternative work, they will actually be worse off (no job - no income) than under the case of working for less than the government set minimum wage (job - little income).

1 comment:

Luke E said...

I have a friend who is in that situation, He has never had a job, graduated high school but barely. He is completely willing to work for five dollars an hour since he is unskilled. If he could work for five dollars an hour he could learn a skill, and then be paid more. But alas there is minimum wage which is set so high that employers are looking for people with experience to work.